Nikhil Kuruganti: Indian Growth to slowdown : HSBC

Indian Growth to slowdown : HSBC

India’s industrial output is likely to ease gradually and touch 4.3 per cent in October as the effects of past monetary tightenings begin to take hold, HSBC said in a note on Thursday.

The lead indicator suggests that the improvement in April industrial production is likely to prove something of an aberration, with output growth lower in May and trending gently down over the next few months, the note said.

India’s industrial output in May is forecast to have grown an annual 7.2 per cent, holding steady near April’s 7.0 per cent expansion but still well below the double-digit levels seen in 2006 and early 2007, according to a Reuters poll of 10 analysts on Thursday.

The Reserve Bank of India has so far in 2008, increased its key lending rate by 75 basis points to 8.50 per cent, while it has increased the banks’ cash reserve ratio, the amount of deposits banks have to keep with it by 125 basis points to 8.25 per cent.

It generally takes 12 to 24 months for the full effect of interest rate changes to be felt in the economy, the note said.

There is likely more damage to be done to the economy (including the industrial sector) from the rate rises of 2006/07, let alone the renewed phase of monetary tightening currently underway, economists Robert Prior-Wandesforde and Manas Paul said in the note.

HSBC expects another 100-basis-points increase each in the central bank’s key lending rate and in banks’ cash reserve ratio by the end of calendar 2008, to 9.5 per cent and 9.75 per cent respectively, the note said.

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